If the economy has an MPC of 0.8, by how much will a $50 billion increase in government purchases increase GDP? By how much will a $50 billion increase in taxes decrease GDP?
What will be an ideal response?
With an MPC of 0.8, the multiplier is 1/(1 - 0.8 ) = 5, so an increase in spending will increase GDP by $250 billion. The tax multiplier would equal -4, so the increase in taxes would reduce GDP by $200 billion.
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A knowledge spillover occurs when firms:
a. restrict trade of inputs with each other. b. have wasteful expenditure. c. mimic the successful innovations of other firms. d. keep secrets from other firms.
When more firms enter an industry:
a. the industry supply curve will shift right. b. the amount produced by each of the new firms will be less than the amount produced by each of the original firms. c. the amount produced by each of the new firms will be greater than the amount produced by each of the original firms. d. the industry supply curve will shift left.